Massachusetts Mut. Life Ins. Co. v. Vogue, Inc.

• Decision Date: 10 March 1965
• Citation: 54 Tenn.App. 624,393 S.W.2d 164
• Parties: MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY, Complainant, Appellant, v. The VOGUE, INC., Defendant, Appellee. 54 Tenn.App. 624, 393 S.W.2d 164
• Court: Tennessee Court of Appeals

Page 164

393 S.W.2d 164

MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY, Complainant Appellant, v. The VOGUE, INC., Defendant, Appellee.

54 Tenn.App. 624, 393 S.W.2d 164

Court of Appeals of Tennessee, Eastern Section.

March 10, 1965 Certiorari Denied by Supreme Court July 19, 1965.

[54 TENNAPP 626]

Chambliss, Chambliss & Hodge, Chattanooga, for appellant.

Ellis K. Meacham, Chattanooga, for appellee.

McAMIS, Presiding Judge.

This case involves the validity of the purported conversion of life insurance from ordinary life to paid-up participating insurance. Massachusetts Mutual Life Insurance Company filed the bill for a declaratory judgment adjudicating the extent of its liability upon three life insurance policies for the aggregate face amount of $100,000.00 upon life of Louis Liberman.

When the policies were issued and at the date of Mr. Liberman's death April 30, 1960, he was President and managing head of the named beneficiary, defendant Vogue, Inc. For many years prior to 1958, Vogue, Inc., had paid the premiums on all of the policies totaling $6,746.75 per year. The policy applications provided that in event of default in premiums the value of the policies should be applied to the purchase of extended term insurance in the face amount of the policies. The policies themselves, however, permit the insured to convert to paid-up participating insurance in anticipation of premium default. In 1958, at the instance of Mr. Liberman and on authority of written applications signed by the Assistant Secretary of Vogue, Inc., complainant amended each of the policies to provide that in event of default in the payment of premiums the cash surrender value should be used to purchase paid-up participating insurance.

[54 TENNAPP 627] No further premium payments were made and the policies were thereafter converted by the Company to paid-up participating insurance in keeping with these amendments. This resulted in a reduction of the insurance from $100,000.00 to $59,767.00, for which the Company concedes liability.

At the time of conversion the cash value of the policies was sufficient to have purchased term policies for $100,000.00 for a period of seven years which would have extended the insurance in the amount of $100,000.00 beyond the date of Mr. Liberman's death. The validity of applications made in 1958 to amend the policies to provide for the purchase of paid-up participating insurance, rather than extended term insurance as set forth in the applications, depends in part at least upon the constitutional validity of T.C.A. 48-706 hereinafter copied.

The Chancellor granted a recovery for $100,000.00, less $59,767.00 which had been paid and accepted without prejudice after the suit was filed. Complainant has appealed, raising as its primary insistence that the Chancellor erred in holding unconstitutional T.C.A. 48-706.

We quote in full the provisions of the statute:

'Release or assignment of life insurance on officers.--When a corporation, organized under the laws of this State, has caused or shall cause to be insured the life of any director, officer, agent or employee; or when such corporation is named as a beneficiary in or assignee of any policy of life insurance, due authority to effect, assign, release, relinquish, convert, surrender, change the beneficiary, or to take any other action with reference to such insurance shall be sufficiently evidenced to the insurance company by a written statement to that effect, signed by the president or secretary or other corresponding [54 TENNAPP 628] officer of such corporation, under its corporate seal. Such statement shall be binding upon such corporation, and any act done or suffered to be done by it upon the faith thereof shall protect the insurance company concerned, without further inquiry into the validity of the corporate authority or the regularity of the corporate proceedings. No person shall be disqualified, by reason of interest in the subject matter, from acting, as a director or as a member of the executive committee of such corporation, or any corporate procedure touching such insurance.'

The Chancellor found the Act to be class legislation in conflict with Article 1, Section 8 and Article 11, Section 8 of the Constitution of Tennessee, in that it makes an unreasonable exception in favor of insurance companies to the provisions of T.C.A. 48-401, giving the Board of Directors full control over the affairs of corporations and that it 'grants privileges to insurance companies and confers upon any officer of a Tennessee chartered corporation the right to execute any insurance instrument and relieves the insurance companies from liability if the officer acted without authority and contrary to the best interest of the corporation.'

We can not agree that the statute is arbitrary class legislation merely because it applies only to insurance companies.

The constitutional provisions against class legislation apply only when the statutory classification bears no reasonable or natural relation to the object sought to be accomplished. The requirement is that there be substantial differences in the situation and circumstances of the persons affected from which the necessity or propriety of the statute may be presumed. The statute must apply alike to all who fall within, or can reasonably bring [54 TENNAPP 629] themselves within the classification. Knoxville & O. R. Co. v....